Simon Black: The Unraveling Can Happen In An Instant

 　Although the crash itself could indeed happen in an instant, the actual process will be longer. There has to be a loss of confidence and an unraveling taking place. The current bubble is beyond deflating, except in China where a "Japanese exit" can delay the outcome for a long time although the price likewise will be the end of the Chinese miracle. (This is already the case.) In Europe and the US, both the Euro and the USD are beyond redemption. The Central banks can buy time as we have seen but the issue is unavoidable. Too much credit has generated too many assets without value which will have to be written off. The only question left is when.

Authored by Simon Black via SovereignMan.com,

If SVB is insolvent, so is everyone else

On Sunday afternoon, September 14, 2008, hundreds of employees of the financial giant Lehman Brothers walked into the bank’s headquarters at 745 Seventh Avenue in New York City to clear out their offices and desks.

Lehman was hours away from declaring bankruptcy. And its collapse the next day triggered the worst economic and financial devastation since the Great Depression.

The S&P 500 fell by roughly 50%. Unemployment soared. And more than 100 other banks failed over the subsequent 12 months. It was a total disaster.

These bank, it turned out, had been using their depositors’ money to buy up special mortgage bonds. But these bonds were so risky that they eventually became known as “toxic securities” or “toxic assets”.

These toxic assets were bundles of risky, no-money-down mortgages given to sub-prime “NINJAs”, i.e. borrowers with No Income, No Job, no Assets who had a history of NOT paying their bills.

When the economy was doing well in 2006 and 2007, banks earned record profits from their toxic assets.

But when economic conditions started to worsen in 2008, those toxic assets plunged in value… and dozens of banks got wiped out.

Now here we go again.

Fifteen years later… after countless investigations, hearings, “stress test” rules, and new banking regulations to prevent another financial meltdown, we have just witnessed two large banks collapse in the United States of America– Signature Bank, and Silicon Valley Bank (SVB).

Now, banks do fail from time to time. But these circumstances are eerily similar to 2008… though the reality is much worse. I’ll explain:

1) US government bonds are the new “toxic security”

Silicon Valley Bank was no Lehman Brothers. Whereas Lehman bet almost ALL of its balance sheet on those risky mortgage bonds, SVB actually had a surprisingly conservative balance sheet.

According to the bank’s annual financial statements from December 31 of last year, SVB had $173 billion in customer deposits, yet “only” $74 billion in loans.

I know this sounds ridiculous, but banks typically loan out MOST of their depositors’ money. Wells Fargo, for example, recently reported $1.38 trillion in deposits. $955 billion of that is loaned out.

That means Wells Fargo has made loans with nearly 70% of its customer’s money, while SVB had a more conservative “loan-to-deposit ratio” of roughly 42%.

Point is, SVB did not fail because they were making a bunch of high-risk NINJA loans. Far from it.

SVB failed because they parked the majority of their depositors’ money ($119.9 billion) in US GOVERNMENT BONDS.

This is the really extraordinary part of this drama.

US government bonds are supposed to be the safest, most ‘risk free’ asset in the world. But that’s totally untrue, because even government bonds can lose value. And that’s exactly what happened.

Most of SVB’s portfolio was in long-term government bonds, like 10-year Treasury notes. And these have been extremely volatile.

In March 2020, for example, interest rates were so low that the Treasury Department sold some 10-year Treasury notes at yields as low as 0.08%.

But interest rates have increased so much since then; last week the 10-year Treasury yield was more than 4%. And this is an enormous difference.

If you’re not terribly familiar with the bond market, one of the most important things to understand is that bonds lose value as interest rates rise. And this is what happened to Silicon Valley Bank.

SVB loaded up on long-term government bonds when interest rates were much lower; the average weighted yield in their bond portfolio, in fact, was just 1.78%.

But interest rates have been rising rapidly. The same bonds that SVB bought 2-3 years ago at 1.78% now yield between 3.5% and 5%… meaning that SVB was sitting on steep losses.

They didn’t hide this fact.

Their 2022 annual report, published on January 19th of this year, showed about $15 billion in ‘unrealized losses’ on their government bonds. (I’ll come back to this.)

By comparison, SVB only had about $16 billion in total capital… so $15 billion in unrealized losses was enough to essentially wipe them out.

Again– these losses didn’t come from some mountain of crazy NINJA loans. SVB failed because they lost billions from US government bonds… which are the new toxic securities.

2) If SVB is insolvent, so is everyone else… including the Fed.

This is where the real fun starts. Because if SVB failed due to losses in its portfolio of government bonds, then pretty much every other institution is at risk too.

Our old favorite Wells Fargo, for example, recently reported $50 billion in unrealized losses on its bond portfolio. That’s a HUGE chunk of the bank’s capital, and it doesn’t include potential derivative losses either.

Anyone who has purchased long-term government bonds– banks, brokerages, large corporations, state and local governments, foreign institutions– are all sitting on enormous losses right now.

The FDIC (the Federal Deposit Insurance Corporation, i.e. the primary banking regulator in the United States) estimates unrealized losses among US banks at roughly $650 billion.

$650 billion in unrealized losses is similar in size to the total subprime losses in the United States back in 2008; and if interest rates keep rising, the losses will continue to increase.

What’s really ironic (and a bit comical) about this is that the FDIC is supposed to guarantee bank deposits.

In fact they manage a special fund called Deposit Insurance Fund, or DIF, to insure customer deposits at banks across the US– including the deposits at the now defunct Silicon Valley Bank.

But the DIF’s balance right now is only around $128 billion… versus $650 billion (and growing) unrealized losses in the banking system.

Here’s what really crazy, though: where does the DIF invest that $128 billion? In US government bonds! So even the FDIC is suffering unrealized losses in its insurance fund, which is supposed to bail out banks that fail from their unrealized losses.

You can’t make this stuff up, it’s ridiculous!

Now there’s one bank in particular I want to highlight that is incredibly exposed to major losses in its bond portfolio.

In fact last year this bank reported ‘unrealized losses’ of more than $330 billion against just $42 billion in capital… making this bank completely and totally insolvent.

I’m talking, of course, about the Federal Reserve… THE most important central bank in the world. It’s hopelessly insolvent, and FAR more broke than Silicon Valley Bank.

What could possibly go wrong?

3) The ‘experts’ should have seen this coming

Since the 2008 financial crisis, legislators and bank regulators have rolled out an endless parade of new rules to prevent another banking crisis.

One of the most hilarious was the new rule that banks had to pass “stress tests”, i.e. war game scenarios to see whether or not banks would be able to survive certain fluctuations in macroeconomic conditions.

SVB passed its stress tests with flying colors. It also passed its FDIC examinations, its financial audits, and its state regulatory audits. SVB was also followed by dozens of Wall Street analysts, many of whom had previously issued emphatic BUY ratings on the stock after analyzing its financial statements.

But the greatest testament to this absurdity was the SVB stock price in late January.

SVB published its 2022 annual financial report after the market closed on January 19, 2023. This is the same financial report where they posted $15 billion in unrealized losses which effectively wiped out the bank’s capital.

The day before the earnings announcement, SVB stock closed at $250.04. The day after the earnings call, the stock closed at $291.44.

In other words, despite SVB management disclosing that their entire bank capital was effectively wiped out, ‘expert’ Wall Street investors excitedly bought the stock and bid the price up by 16%. The stock continued to soar, reaching a high of $333.50 a few days later on February 1st.

In short, all the warning signs were there. But the experts failed again. The FDIC saw Silicon Valley Bank’s dismal condition and did nothing. The Federal Reserve did nothing. Investors cheered and bid the stock up.

And this leads me to my next point:

4) The unraveling can happen in an instant.

A week ago, everything was still fine. Then, within a matter of days, SVB’s stock price plunged, depositors pulled their money, and the bank failed. Poof.

The same thing happened with Lehman Brothers in 2008. In fact over the past few years we’ve been subjected to example after example of our entire world changing in an instant.

We all remember that March 2020 was still fairly normal, at least in North America. Within a matter of days people were locked in their homes and life as we knew it had fundamentally changed.

5) This is going to keep happening.

Long-time readers won’t be surprised about this; I’ve been writing about these topics for years– bank failures, looming instability in the financial system, etc.

Late last year I recorded a podcast explaining how the Fed was engineering a financial meltdown by raising interest rates so quickly, and they would have to choose between a rock and a hard place, i.e. higher inflation versus financial catastrophe.

This is the financial catastrophe, but it’s just getting started. Like Lehman Brothers in 2008, SVB is just the tip of the iceberg. There will be other casualties– not just in banks, but money market funds, insurance companies, and even businesses.

Foreign banks and institutions are also suffering losses on their US government bonds… and that has negative implications on the US dollar’s reserve status.

Think about it: it’s bad enough that the US national debt is outrageously high, that the federal government appears to be a bunch of fools incapable of solving any problem, and that inflation is terrible.

Now on top of everything else, foreigners who bought US government bonds are suffering tough losses as well.

Why would anyone want to continue with this insanity? Foreigners have already lost so much confidence in the US and the dollar… and financial losses from their bond holdings could accelerate that trend.

This issue is particularly of mind now that China is flexing its international muscle, most recently in the Middle East making peace between Iran and Saudi Arabia. And the Chinese are starting to actively market their currency as an alternative to the dollar.

But no one in charge seems to understand any of this.

The guy who shakes hands with thin air insisted this morning that the banking system is safe. Nothing to see here, people.

The Federal Reserve– which is the ringleader of this sad circus– doesn’t seem to understand anything either.

In fact Fed leadership spent all of last week insisting that they were going to keep raising interest rates.

Even after last week’s banking crisis, the Fed probably still hasn’t figured it out. They appear totally out of touch with what’s really happening in the economy. And when they meet again next week, it’s possible they’ll raise rates even higher (and trigger even more unrealized losses).

So this drama is far from over.

The day when everyone becomes a millionaire in the US is fast approaching... (Joke)

  "Stand by and watch as we bailout all the woke tech companies that piled their money in their favorite woke bank." 

  The day when everyone becomes a millionaire in the US is fast approaching...

 

What Happened at Silicon Valley Bank Friday

  This may not be the Lehman moment of the next crisis yet. But it is definitively the Bear Stearns shot across the bow as a warning of worse to come. Which bank can you trust? Where should you move your money? Gold? Commodities?

 As we have argued many times on this blog, in the end, Covid was little more than a pretext to refinance massively a floundering financial system. but the solution was temporary. Now, banks worldwide need many more trillions to stay afloat. Where will these come from? It is too late for inflation alone to be the answer. We would need hyper-inflation. Any sudden move may create a run on the dollar. Because the stakes are so high, we may finally be approaching the unavoidable conclusion of 50 years of financial profligacy. (52 years actually since the "temporary" suspension of the convertibility of the dollar into gold in 1971.)

 Following the agreement between Iran and Saudi Arabia last week, Xi Jinping is rushing to Moscow next week. History is on the move. They know it... 

1. Market Summary

Authored by Goldfix

The week started out sleepy enough but late Thursday we got tremors in banking that decimated the industry’s stocks. Let’s just get to the main show, Silicon Valley Bank (SVB). Here is a play-by-play recap for Friday’s activity.

The stock was down over 60% before the market even opened in pre-market trading. Between 9:30 and 11:30 there were various headlines describing attempts to raise money and then to find a buyer. None were successful.

At 11:30 the headlines changed markedly from hope to despair. The FDIC closed the bank.

• *FDIC: SVB BANK CLOSED BY CALIFORNIA REGULATOR
• *FDIC: SVB BANK IS FIRST INSURED INSTITUTION TO FAIL THIS YEAR
• *FDIC: NAMED FEDERAL DEPOSIT INSURANCE FDIC AS RECEIVER
• SILICON VALLEY BANK INSURED DEPOSITORS TO HAVE ACCESS MONDAY

And with that the US experienced its second largest bank failure in history. It was noted SVB’s stock price went from $763 to zero in 16 months.

Via FOREXLIVE

The FDIC released a full statement. Here is an excerpt.

Silicon Valley Bank, Santa Clara, California, was closed today by the California Department of Financial Protection and Innovation…All insured depositors will have full access to their insured deposits no later than Monday morning, March 13, 2023. The FDIC will pay uninsured depositors an advance dividend within the next week. Uninsured depositors will receive a receivership certificate for the remaining amount of their uninsured funds. As the FDIC sells the assets of Silicon Valley Bank, future dividend payments may be made to uninsured depositors. Customers with accounts in excess of $250,000 should contact the FDIC toll-free at 1-866-799-0959- FDIC

There are so many second and third tier effects of this event as well as speculation that the bank-run was instigated by some well-heeled depositors and possibly even condoned by a large commercial banks like JPM.

Normally this would be conspiracy stuff. But it is not. We received and answered may questions on this. Here are the most relvant ones re-answered.

1. What happened to cause this?

2. Why was JPM poaching depositors before it went under?

3. This happened days after California and the broader US ended its Covid pandemic exceptions for bank risk- How much of that was a factor?

4. The FDIC took over very quickly. Quicker than Lehman. Why?

5. What will the Fed do with interest rates?

6. Did the SVB executives do anything?

7. What is one thing you can say with large confidence?

8. Is there contagion risk?

9. Anything Else?

10. Addendum

1- What happened to cause this?

First off, the key here is banking reserves. A bank must have so much money in it at all times. Even if nothing is happening, if their loan portfolio drops, then their assets drop and thus their reserves drop. Regional banks are low on reserves right now. Meanwhile, the big banks have over $2TT in the Feds RRP program earning 4.75% or so.

1. SVB is a large bank but it is regional. Therefore it depends more on customer deposits than mega banks like JPM. A lot of their depositors are (were) tech company people in the San Fran area.

2. Commercial real estate crashed in the area, and is getting worse. They hold mortgages on these

3. The Covid pandemic emergency permitted banks to keep loans that were in arrears in the “ok” column. When that emergency was recently lifted, they had to then show they were losing money on defaulted mortgages etc…

4. QT and rate hikes hit tech stocks, forcing the bank to pay higher rates for deposits while customers drew down money- costs went up and deposits went down. (See here also)

5. Their “good” investment portfolio also went underwater. Many of their investments are Held to Maturity (HTM) types. So as rates climbed, they could not take advantage of the better revenues. They also got marked to market

6. Their remaining big Tech company depositors got spooked by JPM, spoke to each other, and pulled their money out.

7. In one day they went from looking for investors, to looking for a buyer, to shut down forever.

2- Why was JPM poaching depositors before it went under?

Here’s why: Smaller banks depend on depositors to keep their balances up to reserve requirement code. But QT shrank many investors’ balance sheets and appetite for floating cash. Bigger commercial banks do not depend on their retail clients to fund them. In many instances, they do not even want that type of business. They give the lowest savings rates in the country.

…while mega institutions such as JP Morgan Chase & Co sought to convince some SVB customers to move their funds Thursday.

Like any trader who is overleveraged and underfunded, Big banks like it when a regional bank goes under. And if they can help it along faster, they will do it. By doing this, they cherry pick the clients they want while before the ship sinks

3- This happened days after California and the broader US ended its Covid pandemic exceptions for bank risk- How much of that was a factor?

We asked this Feb 24th after having a chat with a GoldFix Founder on the topic:

VBL Feb 24th

February 28th it happened.

4- The FDIC took over very quickly. Quicker than Lehman. Why?

The obvious and at least partially correct take: There is a much bigger problem out there and they want to get ahead of it. Simple enough. Our own lesser obvious but equally likely take: There may be something bigger out there, but they knew this was going to happen based on JPM’s behavior, the end of Covid exceptions, and how other credit facilities were trading.Like the Bitcoin bubble, they had to let it happen to send 2 signals: 1) The Fed bailout is not happening again on a mass scale 2) They will show they are in control by taking charge.

5- What will the Fed do with interest rates?

Our bias is the Fed will not pivot unless something they cannot fix behind the scenes breaks. We have to admit this is something that will at least give them reason to pause. They could definitely pivot and lower rates, but it will be a later resort than usual.

They want the fiscal side to handle this stuff while they fight inflation. Yellen is at bat. So will they pivot? They might. Does that matter? Yes. It would be a sign that the Fed cannot fight inflation without destroying the economy. And given the fiscal purse is wide open now, that is very very bad. Think of the Fed as the last defense against inflation as we enter an era of bigger government and more spending.

Put it this way. If they have to pivot (not pause.. literally pivot) it is all over. That will mean they have exhausted every behind the scenes tool they can. Powell does not want to pivot. Gold and Silver will scream. Inflation will go through the roof on goods. They may use capital controls and new rules to keep things out of the ionosphere. This would explode geopolitical risk as well.

6- Did the SVB executives do anything?

Yes.

They sold their stock just as the pandemic emergency was ending.

7- What is one thing you can say with large confidence?

We thought that the inflation target would be raised from 2% to 3% before.. we think it a hell of a lot more now. Here is what we wrote about that Friday

One thing that’s starting to make sense. Is if this bank crisis remains a crisis and the Fed doesn’t pivot or do something special, and Yellen can’t fix it from her side—It just brings us that much closer to raising the inflation target from 2% to three or 4%.

This type of event gives the Fed cover to change their tune on the inflation target. Meaning Powell can say

“We firmly want to get to 2% but if we continue to pursue 2% at this rate, we could cause some serious harm in the economy.

Therefore, we are going to change our target to 4% and then after six months we will lower to 3%. Then after six months will lower to 2%.

We’re going to do this because the expectations of the market are becoming very fearful because banks are having depositors pull their money in fear of the further rate hikes, continuing and certain entities need to unwind risk“

Something like that. But this definitely give them cover to raise the target.

We absolutely believe that the inflation target will be raised. The Fed will then start YCC1

(a QE effect to keep a lid on bond yields, but not stocks). When? Not for months, until after the crisis is handled. You do not make announcements like this in the middle of it all.

8- Is there contagion risk?

Yes. MS and GS do not think there is much risk. ZH does. We think there is risk, and they already know who is going to need help or go under. Here is MS:

We do not expect that other banks in our coverage will need to raise capital: This is because we do not expect the same level of deposit outflows at the other banks in our coverage. Therefore, we do not expect any meaningful sale of AFS securities that will result in a large capital hit, which would necessitate a capital raise.

9- Anything Else?

Yes. Jim Cramer should be fired

After telling everyone Bear Stearns was safe before it went belly up years ago…

Cramer then told investors to buy SVB on February 8th….

“A merchant bank with a deposit base that Wall Street has been mistakenly concerned about“ Ht:@zerohedge

If that wasn’t bad enough.. Now he’s telling us JPM is safe…

Why does Jim Cramer still have job?

10- Addendum:

This is credit related stuff. Their no denying it is the most important part of the financial economy. Without commercial credit, there is no real economy. Once banks and companies stop lending to each other everything stops. This smells like a much bigger version of the merchant energy collapse precipitated by Enron back in the day when none trusted each other to do business. Back then the physical market almost shut down. Nobody’s credit was trusted anymore. This is where we are now, but much bigger.

Tverberg: When The Economy Gets Squeezed By Too Little Energy

   I should have a post it on my computer that in 2023 nobody reads long articles anymore. People prefer to have the gist of any article in two lines and if they are interested get the three reasons why this is so below. Fine.

  Our current crisis is an ENERGY crisis. 

  In other words, the complexity of our society has exceeded what the available input of energy allows and almost everything we do from now on will change nothing to this fact. We are going down to a simpler paradigm. Slower when we do the right things. Faster otherwise. Governments will redistribute the chairs on the deck of the Titanic by giving more to those they believe deserve it or more cynically those who have the power to get more and less to everybody else. At the macro level, over the last 30 years, those who have benefited most have been the jet set elites and China which amazingly got 80% of its population out of poverty over this short time frame.    

  When the cake was still growing, it didn't matter much. We could see the difference 30 years later but most people did not feel the pain of their shrinking income directly. It just happens that the average people in Shanghai is now almost as rich and in Seoul richer than their peer in Tokyo. Amazing but just a fact.

 

  But all this changes when the pie is getting smaller. The slow process of diverting riches accelerates suddenly and becomes unacceptable to most people. The pain will soon become especially acute in Europe where the Covid emergency and later the war in Ukraine will stop hiding the effects of absurd energy policies.  

Authored by Gail Tverberg via Our Finite World blog,

Most people have a simple, but wrong, idea about how the world economy will respond to “not enough energy to go around.” They expect that oil prices will rise. With these higher prices, producers will be able to extract more fossil fuels so the system can go on as before. They also believe that wind turbines, solar panels and other so-called renewables can be made with these fossil fuels, perhaps extending the life of the system further.

The insight people tend to miss is the fact that the world’s economy is a physics-based, self-organizing system. Such economies grow for many years, but ultimately, they collapse. The underlying problem is that the population tends to grow too rapidly relative to the energy supplies necessary to support that population. History shows that such collapses take place over a period of years. The question becomes: What happens to an economy beginning its path toward full collapse?

One of the major uses for fossil fuel energy is to add complexity to the system. For example, roads, electricity transmission lines, and long-distance trade are forms of complexity that can be added to the economy using fossil fuels.

When energy per capita falls, it becomes increasingly difficult to maintain the complexity that has been put in place. It becomes too expensive to properly maintain roads, electrical services become increasingly intermittent, and trade is reduced. Long waits for replacement parts become common. These little problems build on one another to become bigger problems. Eventually, major parts of the world’s economy start failing completely.

When people forecast ever-rising energy prices, they miss the fact that market fossil fuel prices consider both oil producers and consumers. From the producer’s point of view, the price for oil needs to be high enough that new oil fields can be profitably developed. From the consumer’s point of view, the price of oil needs to be sufficiently low that food and other goods manufactured using oil products are affordable. In practice, oil prices tend to rise and fall, and rise again. On average, they don’t satisfy either the oil producers or the consumers. This dynamic tends to push the economy downward.

There are many other changes, as well, as fossil fuel energy per capita falls. Without enough energy products to go around, conflict tends to rise. Economic growth slows and turns to economic contraction, creating huge strains for the financial system. In this post, I will try to explain a few of the issues involved.

[1] What is complexity?

Complexity is anything that gives structure or organization to the overall economic system. It includes any form of government or laws. The educational system is part of complexity. International trade is part of complexity. The financial system, with its money and debt, is part of complexity. The electrical system, with all its transmission needs, is part of complexity. Roads, railroads, and pipelines are part of complexity. The internet system and cloud storage are part of complexity.

Wind turbines and solar panels are only possible because of complexity and the availability of fossil fuels. Storage systems for electricity, food, and fossil fuels are all part of complexity.

With all this complexity, plus the energy needed to support the complexity, the economy is structured in a very different way than it would be without fossil fuels. For example, without fossil fuels, a high percentage of workers would make a living by performing subsistence agriculture. Complexity, together with fossil fuels, allows the wide range of occupations that are available today.

[2] The big danger, as energy consumption per capita falls, is that the economy will start losing complexity. In fact, there is some evidence that loss of complexity has already begun.

In my most recent post, I mentioned that Professor Joseph Tainter, author of the book, The Collapse of Complex Societies, says that when energy supplies are inadequate, the resulting economic system will need to simplify–in other words, lose some of its complexity. In fact, we can see that such loss of complexity started happening as early as the Great Recession in 2008-2009.

The world was on a fossil fuel energy consumption per capita plateau between 2007 and 2019. It now seems to be in danger of falling below this level. It fell in 2020, and only partially rebounded in 2021. When it tried to rebound further in 2022, it hit high price limits, reducing demand.

Figure 2. Fossil fuel energy consumption per capita based on data of BP’s 2022 Statistical Review of World Energy.

There was a big dip in energy consumption per capita in 2008-2009 when the economy encountered the Great Recession. If we compare Figure 2 and Figure 3, we see that the big drop in energy consumption is matched by a big drop in trade as a percentage of GDP. In fact, the drop in trade after the 2008-2009 recession never rebounded to the former level.

Figure 3. Trade as a percentage of world GDP, based on data of the World Bank.

Another type of loss of complexity involves the drop in the recent number of college students. The number of students was rising rapidly between 1950 and 2010, so the downward trend represents a significant shift.

Figure 4. Total number of US full-time and part-time undergraduate college and university students, according to the National Center for Education Statistics.

The shutdowns of 2020 added further shifts toward less complexity. Broken supply lines became more of a problem. Empty shelves in stores became common, as did long waits for newly ordered appliances and replacement parts for cars. People stopped buying as many fancy clothes. Brick and mortar stores did less well financially. In person conferences became less popular.

We know that, in the past, economies that collapsed lost complexity. In some cases, tax revenue fell too low for governments to maintain their programs. Citizens became terribly unhappy with the poor level of government services being provided, and they overthrew the governmental system.

The US Department of Energy states that it will be necessary to double or triple the size of the US electric grid to accommodate the proposed level of clean energy, including EVs, by 2050. This is, of course, a kind of complexity. If we are already having difficulty with maintaining complexity, how do we expect to double or triple the size of the US electric grid? The rest of the world would likely need such an upgrade, as well. A huge increase in fossil fuel energy, as well as complexity, would be required.

[3] The world’s economy is a physics-based system, called a dissipative structure.

Energy products of the right kinds are needed to make goods and services. With shrinking per capita energy, there will likely not be enough goods and services produced to maintain consumption at the level citizens are used to. Without enough goods and services to go around, conflict tends to grow.

Instead of growing and experiencing economies of scale, businesses will find that they need to shrink back. This makes it difficult to repay debt with interest, among other things. Governments will likely need to cut back on programs. Some governmental organizations may fail completely.

To a significant extent, how these changes happen is related to the maximum power principle, postulated by ecologist Howard T. Odum. Even when some inputs are inadequate, self-organizing ecosystems try to maintain themselves, as best possible, with the reduced supplies. Odum said, “During self-organization, system designs develop and prevail that maximize power intake, energy transformation, and those uses that reinforce production and efficiency.” As I see the situation, the self-organizing economy tends to favor the parts of the economy that can best handle the energy shortfall that will be taking place.

In Sections [4], [5], and [6], we will see that this methodology seems to lead to a situation in which competition leads to different parts of the economy (energy producers and energy consumers) being alternately disadvantaged. This approach leads to a situation in which the human population declines more slowly than in either of the other possible outcomes:

• Energy producers win, and high energy prices prevail – The real outcome would be that high prices for food and heat for homes would quickly kill off much of the world’s population because of lack of affordability.

• Energy consumers always win, and low energy prices prevail – The real outcome would be that energy supplies would fall very rapidly because of inadequate prices. Population would fall quickly because of a lack of energy supplies (particularly diesel fuel) needed to maintain food supplies.

[4] Prices: Competition between producers and customers will lead to fossil fuel energy prices that alternately rise and fall as extraction limits are hit. In time, this pattern can be expected to lead to falling fossil fuel energy production.

Energy prices are set through competition between:

[a] The prices that consumers can afford to pay for end products whose costs are indirectly determined by fossil fuel prices. Food, transportation, and home heating costs are especially fossil fuel price sensitive. Poor people are the most quickly affected by rising fossil fuel prices.

[b] The prices that producers require to profitably produce these fuels. These prices have been rising rapidly because the easy-to-extract portions were removed earlier. For example, the Wall Street Journal is reporting, “Frackers Increase Spending but See Limited Gains.”

If fossil fuel prices rise, the indirect result is inflation in the cost of many goods and services. Consumers become unhappy when inflation affects their lifestyles. They may demand that politicians put price caps in place to somehow stop this inflation. They may encourage politicians to find ways to subsidize costs, so that the higher costs are transferred to a different part of the economy. At the same time, the producers need the high prices, to be able to fund the greater reinvestment necessary to maintain, and even raise, future fossil fuel energy production.

The conflict between the high price producers need and the low prices that many consumers can afford is what leads to temporarily spiking energy prices. In fact, food prices tend to spike, too, since food is a kind of energy product for humans, and fossil fuel energy products (oil, especially) are used in growing and transporting the food products. In their book, Secular Cycles, researchers Peter Turchin and Sergey Nefedov report a pattern of spiking prices in their analysis of historical economies that eventually collapsed.

With oil prices spiking only temporarily, energy prices are, on average, too low for fossil fuel producers to afford adequate funds for reinvestment. Without adequate funds for reinvestment, production begins to fall. This is especially a problem as fields deplete, and funds needed for reinvestment rise to very high levels.

[5] Demand for Discretionary Goods and Services: Indirectly, demand for goods and services, especially in discretionary sectors of the economy, will also tend to get squeezed back by the rounds of inflation caused by spiking energy prices described in Item [4].

When customers are faced with higher prices because of spiking inflation rates, they will tend to reduce spending on discretionary items. For example, they will go out to eat less and spend less money at hair salons. They may travel less on vacation. Multiple generation families may move in together to save money. People will continue to buy food and beverages since these are essential.

Businesses in discretionary areas of the economy will be affected by this lower demand. They will buy fewer raw materials, including energy products, reducing the overall demand for energy products, and tending to pull energy prices down. These businesses may need to lay off workers and/or default on their debt. Laying off workers may further reduce demand for goods and services, pushing the economy toward recession, debt defaults, and thus lower energy prices.

We find that in some historical accounts of collapses, demand ultimately falls to close to zero. For example, see Revelation 18:11-13 regarding the fall of Babylon, and the lack of demand for goods, including the energy product of the day: slaves.

[6] Higher Interest Rates: Banks will respond to rounds of inflation described in Item [4] by demanding higher interest rates to offset the loss of buying power and the greater likelihood of default. These higher interest rates will have adverse impacts of their own on the economy.

If inflation becomes a problem, banks will want higher interest rates to try to offset the adverse impact of inflation on buying power. These higher interest rates will tend to reduce demand for goods that are often bought with debt, such as homes, cars, and new factories. As a result, the sale prices of these assets are likely to fall. Higher interest rates will tend to produce the same effect for many types of assets, including stocks and bonds. To make matters worse, defaults on loans may also rise, leading to write-offs for the organizations carrying these loans on their balance sheets. For example, the used car dealer Caravan is reported to be near bankruptcy because of issues related to falling used car prices, higher interest rates, and higher default rates on debt.

An even more serious problem with higher interest rates is the harm they do to the balance sheets of banks, insurance companies, and pension funds. If bonds were previously purchased at a lower interest rate, the value of the bonds is less at a higher interest rate. Accounting for these organizations can temporarily hide the problem if interest rates quickly revert to the lower level at which they were purchased. The real problem occurs if inflation is persistent, as it seems to be now, or if interest rates keep rising.

[7] A second major conflict (after the buyer/producer conflict in Item [4], [5], and [6]) is the conflict in how the output of goods and services should be split between returns to complexity and returns to basic production of necessary goods including food, water, and mineral resources such as fossil fuels, iron, nickel, copper, and lithium.

Growing complexity in many forms is something that we have come to value. For example, physicians now earn high wages in the US. People in top management positions in companies often earn very high wages. The top people in large companies that buy food from farmers earn high wages, but farmers producing cattle or growing crops don’t fare nearly as well.

As energy supply becomes more constrained, the huge chunks of output taken by those with advanced degrees and high positions within the large companies gets to be increasingly problematic. The high incomes of citizens in major cities contrasts with the low incomes in rural areas. Resentment among people living in rural areas grows when they compare themselves to how well people in urbanized areas are doing. People in rural areas talk about wanting to secede from the US and wanting to form their own country.

There are also differences among countries in how well their economies get rewarded for the goods and services they produce. The United States, the EU, and Japan have been able to get better rewards for the complex goods that they produce (such as banking services, high-tech medicine, and high-tech agricultural products) compared to Russia and the oil exporting countries of the Middle East. This is another source of conflict.

Comparing countries in terms of per capita GDP on a Purchasing Power Parity (PPP) basis, we find that the countries that focus on complexity have significantly higher PPP GDP per capita than the other areas listed. This creates resentment among countries with lower per-capita PPP GDP.

Figure 5. Average Purchasing Power Parity GDP Per Capita in 2021, in current US dollars, based on data from the World Bank.

Russia and the Arab World, with all their energy supplies, come out behind. Ukraine does particularly poorly.

The conflict between Russia and Ukraine is between two countries that are doing poorly on this metric. Ukraine is also much smaller than Russia. It appears that Russia is in a conflict with a competitor that it is likely to be able to defeat, unless NATO members, including the US, can give immense support to Ukraine. As I discuss in the next section, the industrial ability of the US and the EU is waning, making it difficult for such support to be available.

[8] As conflict becomes a major issue, which economy is largest and is best able to defend itself becomes more important.

Figure 6. Total (not per capita) PPP GDP for the US, EU, and China, based on data of the World Bank.

Back in 1990, the EU had a greater PPP GDP than did either the US or China. Now, the US is a little ahead of the EU. More importantly, China has come from way behind both the US and EU, and now is clearly ahead of both in PPP GDP.

We often hear that the US is the largest economy, but this is only true if GDP is measured in current US dollars. If differences in actual purchasing power are reflected, China is significantly ahead. China is also far ahead in total electricity production and in many types of industrial output, including cement, steel, and rare earth minerals.

The conflict in Ukraine is now leading countries to take sides, with Russia and China on the same side, and the United States together with the EU on Ukraine’s side. While the US has many military bases around the world, its military capabilities have increasingly been stretched thin. The US is a major oil producer, but the mix of oil it produces is of lower and lower average quality, especially if obtaining diesel and jet fuel from it are top priorities.

Figure 7. Chart by OPEC, showing the mix of liquids that now make up US production. Even the “Tight crude” tends to be quite “light,” making it less suitable for producing diesel and jet fuel than conventional crude oil. Chart from OPEC’s February 2023 Monthly Oil Market Report.

Huge pressure is building now for China and Russia to trade in their own currencies, rather than the US dollar, putting pressure on the US financial system and its status as the reserve currency. It is also not clear whether the US would be able to fight on more than one front in a conventional war. A conflict with Iran has been mentioned as a possibility, as has a conflict with China over Taiwan. It is not at all clear that a conflict between NATO and China-Russia is winnable by the NATO forces, including the US.

It appears to me that, to save fuel, more regionalization of trade is necessary with the Asian countries being primary trading partners of each other, rather than the rest of the world. If such a regionalization takes place, the US will be at a disadvantage. It currently depends on supply lines stretching around the world for computers, cell phones, and other high-tech devices. Without these supply lines, the standards of living in the US and the EU would likely decline quickly.

[9] Clearly, the narratives that politicians and the news media tell citizens are under pressure. Even if they understand the true situation, politicians need a different narrative to tell voters and young people wondering about what career to pursue.

Every politician would like a “happily ever after” story to tell citizens. Fortunately, from the point of view of politicians, there are lots of economists and scientists who put together what I call “overly simple” models of the economy. With these overly simple models of the economy, there is no problem ahead. They believe the standard narrative about oil and other energy prices rising indefinitely, so there is no energy problem. Instead, our only problem is climate change and the need to transition to green energy.

The catch is that our ability to scale up green energy is just an illusion, built on the belief that complexity can scale up indefinitely without the use of fossil fuels.

We are left with a major problem: Our current complex economy is in danger of degrading remarkably in the next few years, but we have no replacement available. Even before then, we may need to do battle, in new ways, with other countries for the limited resources that are available.

Protests Break Out As Chinese Cities Drown Under $10 Trillion In Debt, Fail To Make Payments

  It is amazing and rather uncanny to see how China is following on the steps of Japan after the bursting of its own real estate bubble in 2022. But it may well be that this was to be expected. Governments like water flowing downhill follow the path of least resistance and immediate pain of restructuring is always more "resistant" than potential bankruptcy down the road. 

  At this stage, China is still is the "gradually" part of the curve unlike Japan which is fast approaching the "suddenly" waterfall of bankruptcy. But China is also a larger and more complex economy than Japan and consequently we can expect more black swans to emerge from financially stressed economic entities.

Protests Break Out As Chinese Cities Drown Under $10 Trillion In Debt, Fail To Make Payments from Zerohedge

The last time we checked in on China's debt, the IIF calculated that it was just shy of 300% its GDP, a record high, and more than double where it was a decade ago. So to say that China has a debt problem isn't exactly a surprise.

What may surprise, however, is that as China has been busy trying to sweep all this massive, growth-crushing debt under the rug (yes, there is a reason why the Politburo's latest GDP target was a disappoint 5% and it begins with "d" and ends with "ebt"), it is starting to run out of hiding spaces and as the WSJ reports overnight, China's economy is "being weighed down by the colossal debts of its local governments, which swelled during the pandemic and are starting to come to a head" and nowhere is this more visible than at the city level.

Xi Jinping’s now defunct zero-Covid campaign buried cities under billions of dollars in unplanned expenditures for mass testing and lockdowns. At the same time, Beijing's crackdown on excessive property-market leverage led to a sharp drop in land sales, depriving cities of one of their biggest revenue sources.

As a result, the WSJ notes that according to S&P Global calculations, two-thirds of local governments are now in danger of breaching unofficial debt thresholds set by Beijing to signify severe funding stress, with their outstanding debt exceeding 120% of income last year.

About a third of China’s major cities are struggling to pay just the interest on debt they owe, according to a survey by Rhodium Group, a New York-based research firm. In one extreme case, in Lanzhou, the capital city of Gansu province, interest payments were the equivalent of 74% of fiscal revenue in 2021. This is rapidly approaching the infamous "Minsky Moment" now that debt has moved beyond "mere" Ponzi financing levels.

Making matters worse, big chunks of debt are coming due soon: according to research by Lianhe Ratings Global, a subsidiary of a large domestic rating agency, about 84% of the $84.2 billion in offshore debt owed by local government financing vehicles will mature between this year and 2025.

Still, as the WSJ, the main concern isn’t that cities will default and trigger a financial crisis - although that can certainly happen assuming Beijing let's them fail, which is unlikely - it is that cities will have to keep cutting spending, delay investments or take other actions to keep creditors at bay, impairing growth for years.

In Zhengzhou, home to a Foxconn assembly site for Apple’s iPhones, bus drivers say their salaries were cut in 2021 and haven’t been restored. Street sweepers report to work even though some say they haven’t been paid in months.

“Our salary isn’t high. Why does the country even owe us this kind of money?” said Xu Aiqiang, 67, as she swept a park on the west side of Zhengzhou. She said her company, a city contractor, hasn’t paid her monthly salary of around $320 for seven months. “Even if they aren’t paying me, I’m still keeping my areas clean, so I can see it for myself.”

At the same time, teachers in the southern megacity of Shenzhen are complaining on social media about sharp cuts in bonuses, an important pay component. In January, a heating company in the rust belt city of Hegang in northeastern China told residents to prepare for a cutoff in heat after the company failed to get subsidies from the local government.

As a result of these spending cuts, protests have broken out in recent weeks in cities such as Wuhan (best known for being the site of the infamous Covid lab leak), Dalian and Guangzhou over public healthcare system overhauls that have included cuts in medical benefits due in part to strained government finances.

In response to this growing social unrest, on Sunday, at annual meetings of China’s legislature in Beijing, Chinese policy makers offered only modest support for local governments, signaling they want to promote fiscal discipline. While fiscal transfers from central authorities to local governments, which Beijing provides annually, are set to increase to around $1.5 trillion this year, the 3.6% increase in 2023 is a far cry from last year’s 18% increase. Municipalities will be allowed to issue around $550 billion worth of local government special-purpose bonds this year, down from last year’s actual issuance of $580 billion.

A few days earlier, Chinese Finance Minister Liu Kun played down financial strains faced by local officials, saying on Wednesday that the situation remained mostly stable last year and is expected to further improve this year as the economy recovers.

The good news is that Beijing still has plenty of fiscal room to intervene in individual cases if necessary to prevent major defaults, according to economists. Local governments can also sell off assets, if they can find buyers. However, the central government’s balance sheet isn’t strong enough to bail out every contingent liability in China, wrote Nicholas Borst, director of China research at Seafarer Capital Partners, a San Francisco-based investment firm, in a research paper on local debt released this month.

“Moreover, a one-off series of bailouts would increase moral hazards and not change the underlying dynamics that led to the problem in the first place,” he wrote, encapsulating the problem facing not just China but every western central bank.

That means local residents—especially civil servants—may see more salary cuts and reduced services, as well as fewer infrastructure investments to power growth and employment. 

Similar to Europe's period of austerity, “the real cost of the debt won’t be a financial crisis but it’ll lead to many years of struggling to allocate the cost of that debt,” said Michael Pettis, a finance professor at Peking University.

Officially, China’s 31 provincial governments owe around $5.1 trillion, including bonds held by local and foreign investors. However, those figures don’t include a variety of off-balance-sheet debts typically raised through so-called local government financing vehicles, which have proliferated in recent years to fund infrastructure and other spending obligations. The debts from those vehicles are expected to reach nearly $10 trillion this year, according to the International Monetary Fund.

As the WSJ puts it in context, the debt from those vehicles is more than the combined government debt of Germany, France and Italy as of the third quarter of 2022.

Interest on the debts crowds out other spending. The Rhodium Group research found that interest costs accounted for at least a fifth of fiscal resources in 25 Chinese cities in 2021. Anything over 10% — the case in more than 100 cities—leads to “meaningful constraints,” Rhodium said.     

As discussed before, local governments’ debt problems have been building since the global financial crisis. Many became addicted to launching projects—which juiced growth—and selling land and borrowing more to pay for all of it. In addition, China’s local governments must shoulder most of the costs of services such as public education and healthcare. Beijing restricts how they can raise money, compelling them to send most of what they collect in taxes to the central government, while limiting what they can borrow.

Zhengzhou, with nearly 13 million residents, has healthier finances than many other cities. Its streets are vibrant, with residents crowding eateries. Yet in the past three years, Zhengzhou’s fiscal revenue dropped by 14% on average each year while total debt grew by 14% annually. Its debt-to-fiscal income ratio rose to 178% in 2022, from 75% in 2019.

Another street sweeper told The Wall Street Journal he hasn’t been paid by his company, also a city contractor, since he joined nearly two months ago. Another two months’ worth of salary remains unpaid from his last job, at a local sanitation department. He said he was told the district government hasn’t sent his company the money to pay his salary, equivalent to around $370 a month.

“Sooner or later they’ll have to pay me,” he said as he kept picking up discarded tissue paper and dried leaves. He relies on his son, a truck driver, to assist him financially, he said.

In late February, a bus company in Shangqiu, a city about two hours’ drive from Zhengzhou with around 7 million residents, said it would suspend bus service starting March 1 due to a “lack of sufficient fiscal support” along with other factors. The decision was retracted after Shangqiu’s government apologized for “negative social impact.”

Similar scenarios have played out in at least three other cities, according to local media. 

While some analysts believe the odds of a financial system meltdown are low, stress could spread if more local borrowers struggle to repay loans on time. In December, Zunyi Road and Bridge Engineering Construction Group, a local government financing vehicle based in Guizhou, one of China’s most indebted provinces, struck a deal with banks to get another 20 years to repay loans worth more than $2 billion. The deal raised fears that other banks could have to bear restructuring costs.

At the end of the day, the concern is that Beijing is unwilling to make changes that could put local government finances on a more stable footing, such as implementing a property tax to raise more funds, because doing so would be politically unpopular and could undermine central authorities’ control over localities. It would also lead to even more social upheaval and protests: the one thing Beijing is truly scared of.

How A Country Goes Bankrupt... In 10 Steps / The case of Japan

  The case of Japan is special as the country has been going downhill since the bursting of its financial and real estate bubbles in 1990. But it is the path followed by almost all developed countries currently. Japan just happens to be ahead although the EU is following close. 

  On top of this, Japan is also facing a social crisis of major proportions with a complete crash of its birth rate ( 1.3 children per woman) and consequently an acceleration of the decline of its population which paradoxically may be a good thing in the long term as eventually there will be more assets per person for those on the other side of the crash...

Authored by John Rubino via Substack,

The past few decades of unnaturally easy money have created a world of “moral hazard” in which a ridiculous number of people borrowed far more than they should have.

Now, with money getting tighter, not just businesses and individuals but some governments are staring at the “suddenly” part of that old saying about bankruptcy.

Japan is the poster child for this slow walk towards – then quick rush over – a financial cliff.

Here’s how it works for a government, in 10 steps.

Step 1: Build up massive debt. A bursting real estate bubble in the 1990s confronted the Japanese government with a choice between accepting a brutal recession in which most of that debt was eliminated through default, or simply bailing out all the zombie banks and construction companies and hoping for the best. They chose bailouts, and federal debt rose from 40% of GDP in 1991 to 100% of GDP by 2000. 

Step 2: Lower interest rates to minimize interest expense. Paying 6% on debt equaling 100% of GDP would be ruinously expensive, so the Bank of Japan pushed interest rates down as debt rose, thus keeping the government’s interest cost at tolerable levels.

Step 3: Continue to borrow at virtually no cost. While interest rates fell, the zombie companies soaking up public funds were joined by a growing number of retirees who began drawing on japan’s versions of Social Security and Medicare. Government spending, as a result, continued to rise and deficits kept growing, further intensifying the pressure to lower interest rates. The BoJ began buying bonds with newly-created yen to force interest rates down to zero and even below (meaning that the remaining private sector buyers of Japanese government paper actually paid for the privilege). Since the government now earned money by borrowing, there seemed to be no reason to stop, and debt soared to the current 262% of GDP, which might be the highest figure ever recorded by a major government.

Step 4: Experience sudden, sharp inflation. In 2022, all that new currency finally caused the inflation that critics of easy money had been predicting. Japan’s official cost of living is now rising at a 4% annual rate, making the real yield on a zero-percent government bond -4%.

Step 5: Experience a plunging currency. With most other central banks tightening to combat inflation, the BoJ kept buying bonds to keep its interest rates low. Investors noticed this yield differential and stopped buying yen-denominated paper, sending the yen’s exchange rate down sharply versus the US dollar.

Step 6: Reluctantly allow interest rates to rise. Also in 2022, the BoJ realized that unless it wanted to buy all the paper the government was issuing, it would have to let interest rates rise a bit. Which they very quickly did, from 0% to .25% and then .5%.

Step 7: Get swamped by interest expense. Now all the debt issued or rolled over by Japan’s government carries a cost. Let’s say the average yield rises to the current 0.5%. On debt equaling 260% of GDP, interest expense equals 1.3% of GDP, a crushing burden that adds to already massive deficits, raising overall debt and therefore interest expense going forward. 

Now For The “Suddenly” Part

All of the above has either happened or is happening. The next steps are scheduled for the near future:  

Step 8: Desperately try to lower rates. Recognizing that soaring interest expense spells national bankruptcy, the BoJ tries to stop and reverse the trend by buying even more government debt with ever larger amounts of newly created yen. But the world’s other central banks are much slower to ease, so the gap between yields on Japanese paper and that of, for instance, the US and Germany, continues to widen.

Step 9: Watch impotently as the yen craters. With government debt rising parabolically and no one other than the BoJ willing to buy the resulting tsunami of paper, Japan enters the realm of full-on Modern Monetary Theory, where the government just finances itself with newly created currency. The rest of the world, recognizing the inflationary implications, dumps the yen and the currency’s exchange rate goes into free fall. A falling currency raises the cost of imports, which increases inflation, which weakens the yen further, putting upward pressure on interest rates, and so on, in what headline writers call a “death spiral”.

Step 10: Game over. Japan is forced into an official devaluation/currency reset which limits its ability to spend and inflate going forward. Everyone who trusted the government and held the old currency is impoverished while those who recognized the scam and converted cash and government bonds into real assets are enriched. It’s a familiar story. But this time it’s happening to a serious country.

Questions

The possibility of a major country going off a financial cliff raises questions about how widespread the effects might be and how US investors might prepare. And of course: “How do we short Japan”?

Now published in the peer-reviewed scientific literature: “The mRNA vaccines are neither safe nor effective, but outright dangerous”

  This article confirms what we and many scientists have been saying over the last 3 years: The Covid-19 vaccine is not only unsafe but actually dangerous.

  The house of cards is crumbling, at last!

Guest Post by Steve Kirsch

In case you missed it. Every health authority in the world should be warning the public about this. The paper was published Sept 21, 2022.

Executive summary

COVID-19 vaccines – An Australian Review was published in the peer-reviewed scientific literature on Sept 21, 2022.

Here’s the two sentences from the paper that everyone should read:

A worldwide Bayesian causal Impact analysis suggests that COVID-19 gene therapy (mRNA vaccine) causes more COVID-19 cases per million and more non-Covid deaths per million than are associated with COVID-19 [43].

An abundance of studies has shown that the mRNA vaccines are neither safe nor effective, but outright dangerous.

Other key insights from the paper

If you don’t have time to read the entire paper, here are some of the highlights.

Here are some other direct quotes from the paper:

1. COVID-19 vaccines cause more side effects than any other vaccine
2. Not only does spike protein produce unwanted side effects, but mRNA and nanoparticles do as well.
3. Never in vaccine history have we seen 1011 case studies showing side effects of a vaccine (https://www.saveusnow.org.uk/covid-vaccine-scientific-proof-lethal).
4. Again, it is inconceivable why it would be impossible to go through the study data in a few months, when it took the CDC less than 4 weeks to give the injections emergency use authorization – unless you want to entertain the idea that the study data were never actually read and scrutinised, a frightening perspective.
5. The official public message is that the mRNA vaccines are safe. However, the Therapeutic Goods Administration (TGA), the medicine and therapeutic regulatory agency of the Australian Government, states quite clearly on their website that the large-scale trials are still progressing and no full data package has been received from any company.
6. The mRNA vaccines were supposed to remain at the injection site and be taken up by the lymphatic system. This assumption proved to be wrong. During an autopsy of a vaccinated person that had died after mRNA vaccination it was found that the vaccine disperses rapidly from the injection site and can be found in nearly all parts of the body [1]. … Research has shown that such nanoparticles can cross the blood-brain barrier and the blood-placenta barrier.
7. Despite not being able to prove a causal link with vaccines, as no autopsies were performed, they still believed that a link with vaccination is possible and further analysis is warranted.
8. In summary, it is unknown where exactly the vaccine travels once it is injected, and how much spike protein is produced in which (and how many) cells.
9. The S1 subunit of the SARS-CoV-2 spike protein when injected into transgenic mice overexpressing human ACE-2 caused a COVID-19 like response. It was further shown that the spike protein S1 subunit, when added to red blood cells in vitro, could induce clotting.
10. The authors found consistent alteration of gene expression following vaccination in many different immune cell types.
11. Seneff et al (2022) describe another mechanism by which the mRNA vaccines could interfere with DNA repair.
12. It is an amazing fact that natural immunity is completely disregarded by health authorities around the world. We know from SARSCoV-1 that natural immunity is durable and persists for at least 12-17 years [17]. Immunologists have suggested that immunity to SARS-Cov-2 is no different
13. Immunity induced by COVID infection is robust and long lasting.
14. mRNA vaccines seem to suppress interferon responses. A literature review by Cardozo and Veazev [26] concluded that COVID-19 vaccines could potentially worsen COVID-19 disease.
15. Natural immunity is still not accepted as proof of immunity in Australia.
16. A study at the University of California followed up on infections in the workforce after 76% had been fully vaccinated with mRNA vaccines by March 2021 and 86.7% by July 2021. In July 2021 75.2% of the fully vaccinated workforce had symptomatic COVID.
17. Acharya et al. (2021) and Riemersma et al. (2021) both showed that the vaccinated have very high viral loads similar to the unvaccinated and are therefore as infectious.
18. Brown et al. (2021) and Servelitta et al (2021) suggested that vaccinated people with symptomatic infection by variants, such as Delta, are as infectious as symptomatic unvaccinated cases and will contribute to the spread of COVID even in highly vaccinated communities.
19. Countries with higher vaccination rates have also higher caseloads. It was shown that the median of new COVID-19 cases per 100,000 people was largely similar to the percent of the fully vaccinated population.
20. Multiple recent studies have indicated that the vaccinated are more likely to be infected with Omicron than the unvaccinated. A study by Kirsch (2021) from Denmark suggests that people who received the mRNA vaccines are up to eight times more likely to develop Omicron than those who did not [40]. This and a later study by Kirsch (2022a) conclude that the more one vaccinates, the more one becomes susceptible to COVID-19 infection [41].
21. This has to be seen in context with the small risk of dying from COVID-19… The chances of someone under 18 years old dying from COVID is near 0%. Those that die usually have severe underlying medical conditions. It is estimated that children are seven times more at risk to die from influenza than from COVID-19. [Editor’s note: so why do colleges mandate the COVID vaccine instead of the influenza vaccine?]

OK, the paper is 18 pages long and those were just excerpts from the first 3 pages. Get the picture?

Excerpts from the conclusion

1. Never in Vaccine history have 57 leading scientists and policy experts released a report questioning the safety and efficacy of a vaccine. They not only questioned the safety of the current Covid-19 injections, but were calling for an immediate end to all vaccination. Many doctors and scientists around the world have voiced similar misgivings and warned of consequences due to long-term side effects. Yet there is no discussion or even mention of studies that do not follow the narrative on safety and efficacy of Covid-19 vaccination.
2. Medical experts that have questioned the safety of these vaccines have been attacked and demonized, called conspiracy theorists and have been threatened to be de-registered if they go against the narrative. Alternative treatments were prohibited and people who never practised medicine are telling experienced doctors how to do their job. AHPRA is doing the same here in Australia to the detriment and in ignorance of science.

The final paragraph sums it up

As scientists we put up hypotheses and test them using experiments. If a hypothesis is proven to be true according to current knowledge it might still change over time when new evidence comes to light. Hence, sharing and accumulating knowledge is the most important part of science. The question arises when and why this process of science has been changed. No discussion of new knowledge disputing the safety of the COVID-19 vaccines is allowed. Who gave bureaucrats the means to destroy the fundaments of science and tell scientists not to argue the science?

Is this paper right?

I was very impressed with this paper. The authors were very thorough.

The paper has been in public view since September 21, 2022 which is more than enough time for scientists to question it.

As far as I am aware, there have not been any mistakes that have been called out that would change the statements or the conclusions of the paper.

How do you resolve conflicts in scientific papers?

Of course, there have been many papers saying the COVID vaccines are life-saving.

Published papers are often completely wrong.

One of my all-time favorites is the Barda paper published in the NEJM because it was used at an ACIP meeting where they showed Figure 3. When I saw that it showed that the vaccine dramatically cut your risk of pulmonary embolism, I couldn’t believe that anyone took this paper seriously.

Let’s be clear: there is no possible mechanism of action that can reduce your risk of pulmonary embolism.

In the X-factor analysis I published long ago, the reporting rate of pulmonary embolism was 954 times higher than baseline. There is no way that can happen if the vaccines reduce the rates of pulmonary embolism.

The CDC itself knows that “pulmonary embolism” has triggered a “safety signal” in VAERS, but they never investigated it. The rates of pulmonary embolism with the COVID vaccines are off-the-charts compared with any other vaccine.

Pulmonary embolism was just one of over 700 safety signals in VAERS reported by the CDC in a FOIA request. They never bothered to warn the public about any of these safety signals (including “death”) because they didn’t want to create vaccine hesitancy.

Generally, review articles are considered the most definitive papers. So when papers disagree, we can often turn to the review articles for guidance since these papers look to resolve conflicting evidence.

The current paper was a review paper!

So we have to ask: is there a more comprehensive paper that reviewed the same body of literature which came to the opposite conclusion?

There was a Cochrane review that appeared after this paper (in Dec 2022) entitled Efficacy and safety of COVID‐19 vaccines. But it was simply a review of the randomized trials and, unlike the current paper, it did not review any of the adverse event data outside of the main trials. Nor did it question the quality of the trials.

If you restrict your view to just the trial data and ignore all the evidence of tampering, the vaccines look good. It is absolutely stunning how the Cochrane review completely missed all the anomalies with the trials, isn’t it? See these two articles: Adverse events in Pfizer trial may have been underreported by 8X or more and Pfizer Phase 3 clinical trial fraud allegations that should be immediately investigated by the FDA. They didn’t even mention that in the limitations sections that they basically assumed that the drug companies were honest and that they decided to ignore all the obvious data that the trials were gamed. Evidence of gaming has been in full public view for a long time. Cochrane ignored it.

However, the Cochrane review noted that “There is insufficient evidence regarding deaths between vaccines and placebo (mainly because the number of deaths was low).”

In short, even in the view of the most supportive paper, there is no evidence that the vaccines did anything to reduce mortality.

Furthermore, there were more deaths in the vaccine group than the placebo group in the Pfizer trial. There were 4X as many cardiac deaths in the treatment group. How do we know for sure that none of those deaths were caused by the vaccine? Has any health official anywhere in the world asked Pfizer to show us the histopathology that was done on the people who died in their trial that proves that the vaccine didn’t kill anyone in the treatment group? Of course not. When I asked Pfizer for that data, they ghosted me.

Since there is not a more recent, comprehensive review paper, then the precautionary principle of medicine suggests that this paper should be controlling until such time as it is shown to be incorrect.

That’s how science is supposed to work.

Every health authority in the world should inform the public about this study NOW

Unless they can cite a newer, more comprehensive review paper which reached the opposite conclusion, every health authority (including the CDC) should let everyone know about this paper.

I’m sure they will all do this immediately, right? Just like they let the public know about the benefits of maintaining normal levels of Vitamin D.

If you have inadequate levels of vitamin D, you can reduce your risk of getting COVID substantially by fixing the deficiency.

The public health authorities did a stellar job of getting the word out on that one, didn’t they? I didn’t see a single public announcement. Did you?

Dr. Joe Mercola has been talking about Vitamin D for COVID for years. This is why he’s listed as the #1 misinformation spreader on the White House’s Disinformation Dozen list.

I know a top scientist at the CDC (who is also an MD and MPH) who wanted the CDC to study vitamin D. She sent over 750 emails on the subject. She was ignored every time by her superiors. After 10 years at the agency, she is fed up; she is leaving the CDC next month.

My tweet about the paper

Here’s my tweet about it

The mainstream media has no responsibility to report this

Unlike public health officials, the mainstream media has no public duty to report this.

In fact, the mainstream media will make sure NOBODY finds out about this review paper.

They will keep promoting the false narratives from the government no matter how many people are killed and no matter what the peer-reviewed science says. Nobody wants to lose their job over this!

About the journal

Clinical & Experimental Immunology is a peer-reviewed medical journal covering clinical and translational immunology. The editor-in-chief is Leonie Taams. It is published by Oxford University Press on behalf of the British Society for Immunology, of which it is the official journal.

Other reviews of this paper

See Peter’s tweet:

Will anyone apologize?

There will be no apologies because science just doesn’t matter anymore.

What do you think?

POLL

Will MIT Technology Review now issue an apology for their defamatory article about me?

When pigs can fly

Highly unlikely

In your dreams

Absolutely! In a heartbeat.

Maybe, if you donate more money

1240 VOTES · 5 DAYS REMAINING

Summary

It’s now in the peer-reviewed scientific literature:

The mRNA vaccines are neither safe nor effective, but outright dangerous.

All of us misinformation spreaders were right after all.

What a surprise.

Don’t expect any apologies though. They will continue to defend the vaccines because otherwise they’ll look bad for recommending them in the first place.

So the public health officials, the mainstream medical community, and the mainstream media will all ignore this paper.

That’s why it’s important that you share this article. Please!